Indirect compensation refers to monetary and non-monetary incentives given to an employee to increase their overall engagement and motivation at work. This type of compensation still has a financial value, but employees don’t receive it in cash form.
Here are some of the common forms of indirect compensation. Note that there’s an overlap between what’s considered indirect compensation and what’s regarded as benefits.
Equity
The employee is offered equity in the company via shares of stock or the option to buy shares. This is a common part of compensation packages within startups where cash is low, and they desire to reward employees who are the first through the door.
When the company succeeds, the employee succeeds too, which incentivizes them to work to achieve the company’s goals.
Stock options
An employee is entitled to purchase a number of shares in the company at a fixed price after working for the company for a set period (typically three to five years). They won’t have any ownership of the company.